What can hit you post-retirement

Think your job is stressful? Then, take note of the many risks to your financial stability post-retirement.

Here are a few risks and the ways to manage them.

Longevity

The risk of living more than expected is probably the biggest risk. All one knows while planning for his retirement is that he/she is ‘expected' to live for 65 years and that women generally outlive men according to figures from the World Health Organisation. But this is just an average which means that 50 per cent of the population would live for less than 65 years and the rest 50 per cent may live for more than 65 years. You may live for 0 year or even surpass 100 years. So what should you be planning for — 60, 65 or 100?

In order to insure situations where you fear outliving your retirement resources, you should choose an annuity that guarantees you regular income till both you and your spouse live. Such options are generally called ‘Whole life last survivor annuity'.

In case you are already retired and haven't opted for any annuity till date, you may choose to opt for ‘Reverse Mortgage Loan Enabled Annuity' plans which take your home as a mortgage against a fixed cash flow every month till both you and your spouse live.

Negative real returns

After retirement, when one solely depends on the returns that his investments make, inflation becomes a bigger worry. If your investments at any point of time, earn a return that is below the rate of inflation, your real rate of return would be negative. This means, instead of earning, you are losing the value of money you've invested. Undoubtedly, you can see the historical averages for inflation, but in fact it's highly unpredictable, especially in emerging countries such as India.

High inflation rates coincide with higher medical costs and senior citizens are the first victims. Not only the medical expenses rise, but also the cost of insuring it, through rise in premiums of mediclaim policies.

Gold investments are considered to be a hedge against inflation and gold has low or negative correlation with almost all asset classes. The returns are stable over the long-term and a small proportion of your portfolio in these can really help.

Secondly, you may invest up to 10 per cent of your portfolio into stocks with high dividend yield such as technology stocks and regularly get in touch with your financial advisor to ensure their fundamentals are intact.

To insure against high medical expenses, take a comprehensive mediclaim policy in your late 30s and then every claim-free year may bring you reduced premiums. If you are already retired and missed buying mediclaim, there are some plans that allow you to enrol also after 60 and they offer protection up to the age of 85 years.

Interest rate risk

Lower interest rates can also play a spoilsport to your retirement plans. Lower interest rates post retirement can lure you to bargain interest risk for credit risk or market risk, the aftermath of which can be even more devastating.

To manage interest rate risk you should partially make debt instruments into a ladder of high yielding FDs as and when possible and partially invest into long-term diversified bond funds with good track record on both returns and credit quality.

While FDs would ensure you regular and high income, debt funds would turn falling interest rates in your favour.

(The writer is Senior Vice-President, Bonanza Portfolio Ltd.)

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